The Australian Dollar had a mixed performance last week. It gained 1.9% against the US dollar but faced losses against the New Zealand dollar and the Japanese yen. The AUD/USD pair rose for the third consecutive week, beginning strong from the open and closing near its weekly high. This upward momentum was largely supported by a dovish speech from Federal Reserve Chair Jerome Powell at the Jackson Hole symposium.
Key Events: Inflation Data from the US and Australia
This week, the spotlight is on inflation data from both the United States and Australia, although these reports are unlikely to significantly alter the current stances of the Federal Reserve (Fed) or the Reserve Bank of Australia (RBA).
Inflation remains the main focus among this week’s top-tier economic data. However, its impact on monetary policy may be limited. Jerome Powell’s recent speech essentially confirmed an upcoming interest rate cut in September, with the possibility of more cuts to follow if economic data supports such actions. This dovish tone caused the US dollar to weaken on Friday, increasing risk appetite in the markets.
US PCE Inflation Data: A Potential Market Mover
The US Personal Consumption Expenditures (PCE) inflation data, set to be released on Friday, is a key event that traders will be watching closely. However, for this data to disrupt expectations of multiple Fed rate cuts, it would need to show a surprisingly strong increase. Historically, PCE data is not particularly volatile, so a major deviation from expectations seems unlikely. Nonetheless, as a top-tier event, it will still draw significant attention from market participants.
Australia’s Monthly Inflation Report: What to Expect
Australia’s monthly inflation report is another key piece of data for the week. While inflation remains above the RBA’s comfort zone, it would need to show a significant acceleration to reignite expectations of another rate hike from the RBA. Currently, money markets are pricing in potential rate cuts rather than hikes. Therefore, the incoming inflation data is unlikely to justify either a cut or a hike, leaving the RBA’s 4.35% interest rate unchanged for now. As a result, while the data is important, it is unlikely to change the RBA’s policy direction.
